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IMF Lifts Weighting of Dollar, Chinese Yuan in SDR Basket

The International Monetary Fund said on Saturday it has increased the weighting of the dollar and Chinese yuan in its review of the currencies that make up the valuation of its Special Drawing Rights (SDR), an international reserve asset.

The review is the first since the yuan, also known as the renminbi, joined the basket of currencies in 2016 in what was a milestone in Beijing’s efforts to internationalise its currency.

The IMF raised the U.S. currency’s weighting to 43.38 per cent from 41.73 per cent and the yuan to 12.28 per cent from 10.92 per cent. The euro’s weighting declined to 29.31 per cent from 30.93 per cent, the yen’s fell to 7.59 per cent from 8.33 per cent and the British pound fell to 7.44 per cent from 8.09 per cent.

The IMF said in a statement its executive board had determined the weighting based on trade and financial market developments from 2017 to 2021.

“Directors concurred that neither the COVID-19 pandemic nor advances in Fintech have had any major impact on the relative role of currencies in the SDR basket so far,” the IMF said.

Although the yuan’s value has declined recently, it has risen roughly 2 per cent against the dollar since 2016, and appreciated about 6 per cent against its major trading partners.

In a statement on Sunday, the People’s Bank of China said China will continue to promote the reform and opening of its financial market.

The updated weightings take effect on Aug. 1.


Source : CNA


The SDR interest rate (SDRi)

The SDRi provides the basis for calculating the interest rate charged to members on their non-concessional borrowing from the IMF and is paid to members for their remunerated creditor positions in the IMF. It is also the interest paid to members on their SDR holdings and charged on their SDR allocations.

Source : IMF

IMF Called China for Continued Appropriate Policies that Support the Economy

The International Monetary Fund called on Beijing to step up fiscal support to bolster an economy that has been slowed by weakening consumption amid the Covid-19 pandemic and a property market plunge.

The policy recommendation came as the fund cut its 2022 growth forecast for China to 4.8% from a previous projection of 5.7%. The economy expanded 8.1% last year.

“China’s recovery is well advanced, but it lacks balance, and momentum has slowed,” the IMF said in a report issued Friday following a consultation with China.

Read the full report . . . . .

IMF Slashes U.S. and China Growth Forecasts

Julia Horowitz wrote . . . . . . . . .

The pandemic will continue to stoke uncertainty and inflation in its third year, undermining the global recovery from the coronavirus and pushing total economic losses toward $14 trillion.

That’s according to the International Monetary Fund, which on Tuesday slashed its global growth forecast for 2022 by half a percentage point to 4.4%. The group said the world’s two largest economies, the United States and China, would grow more slowly than it predicted in October.

The IMF sees America’s economic output increasing 4% this year after rising by 5.6% in 2021. It shaved 1.2 percentage points off its previous forecast due to “lower prospects” that Congress will pass President Joe Biden’s Build Back Better economic plan, lingering supply chain disruption and the rising chance of aggressive action by the Federal Reserve to rein in inflation.

In China, economic growth for 2022 is now pegged at 4.8%, 0.8 percentage points lower than previously expected and a marked slowdown from the 8.1% growth achieved in 2021. The IMF pointed to the ongoing pullback in the country’s huge real estate sector and a “weaker-than-expected” recovery in personal spending.

The IMF now expects the pandemic to have cost the world $13.8 trillion in lost economic output by the end of 2024. While advanced economies are expected to return to their pre-pandemic trajectories this year, that’s not the case for “several emerging markets and developing economies,” which are still poised to suffer “sizable output losses.”

“The last two years reaffirm that this crisis and the ongoing recovery is like no other,” Gita Gopinath, the IMF’s first deputy managing director, said in a blog post. “Policymakers must vigilantly monitor a broad swath of incoming economic data, prepare for contingencies, and be ready to communicate and execute policy changes at short notice.”

Rising prices present a major challenge. The IMF revised up its estimates for global inflation, predicting that “elevated price pressures [are] expected to persist for longer.”

It now sees consumer prices rising 3.9% in advanced economies this year and 5.9% in emerging market and developing economies — sharper increases than were recorded in 2021, when consumer prices rose 3.1% and 5.7%, respectively.
Inflation in advanced economies is expected to fall back toward 2%, the target for most major central banks, in 2023. But the IMF said that a number of conditions will need to be met.

Assuming expectations for inflation don’t get out of hand and “the pandemic eases its grip, higher inflation should fade as supply chain disruptions ease, monetary policy tightens, and demand rebalances away from goods-intensive consumption towards services,” the IMF said.

The organization emphasized that its forecast is “subject to high uncertainty.” It’s on alert for new variants of the coronavirus that could prolong the pandemic, fresh damage to supply chains due to China’s policy of suppressing all Covid outbreaks, and “higher inflation surprises” in the United States that could force the Fed to be even more aggressive with interest rate hikes.

It also cited “rising geopolitical tensions and social unrest” as risks to the outlook. Western countries are currently engaged in a high-stakes standoff with Russia to avert an invasion of Ukraine.


Source : CNN

Chart of the Day: IMF Latest World Economic Outlook Update Growth Projections

IMF Envisions a Sharp 4.4% Drop in Global Growth for 2020

Martin Crutsinger wrote . . . . . . . . .

The International Monetary Fund foresees a steep fall in international growth this year as the global economy struggles to recover from the pandemic-induced recession, its worst collapse in nearly a century.

The IMF estimated Tuesday that the global economy will shrink 4.4% for 2020. That would be the worst annual plunge since the Great Depression of the 1930s. By comparison, the international economy contracted by a far smaller 0.1% after the devastating 2008 financial crisis.

The monetary fund’s forecast for 2020 in its latest World Economic Outlook does represent an upgrade of 0.8 percentage point from its previous forecast in June. The IMF attributed the slightly less dire forecast to faster-than-expected rebounds in some countries, notably China, and to government rescue aid that was enacted by the United States and other major industrial countries.

While forecasting a global contraction this year, after 2.8% growth in 2019, the IMF predicts a rebound to global growth of 5.2% next year, 0.2 percentage point lower than in its June forecast.

The 189-nation lending agency cautioned that many developing countries, notably India, are faring worse than expected, in large part because of a resurgent virus. Many nations face the threat of economic reversals if government support is withdrawn too quickly, the IMF warned.

“While the global economy is coming back, the ascent will be long, uneven and uncertain,” Gita Gopinath, the IMF’s chief economist, wrote in the new outlook. “Recovery is not assured while the pandemic continues to spread.”

At a news conference, Gopinath said it was critical that government economic support not be withdrawn too quickly.

“This crisis will leave scars,” she told reporters, stemming from damage to labor markets that will take time to regain lost jobs, lost business investment and diminished schooling that will reduce the development of human capital around the world.

For the United States, the IMF forecasts an economic contraction of 4.3% this year, 3.7 percentage points better than in its June forecast. The less-pessimistic outlook reflects a stronger-than-expected bounce from the $3 trillion in relief aid that Congress enacted earlier this year.

For next year, the IMF envisions 3.1% growth in the United States, 1.4 percentage points less than in its June outlook and in line with the view of private forecasters. Last year, the U.S. economy grew 2.2%.

China, the world’s second-largest economy, is expected to grow 1.9% this year, a sharp slowdown from the 6.1% gain in 2019, and then expand 8.2% in 2021.

The IMF said that while a swift recovery in China had surprised forecasters, the global rebound remains vulnerable to setbacks. It noted that “prospects have worsened significantly in some developing countries where where infections are rising rapidly” and that in India and in poorer nations in Africa and Asia, the pandemic has continued to spread and in some areas even accelerate.

“Preventing further policy setbacks,” the IMF said, “will require that policy support is not prematurely withdrawn.”

In the United States, a variety of economic aid programs, including small business loans to prevent layoffs and a $600-a-week unemployment benefit, have expired. Congress has so far failed to reach a compromise agreement to provide further financial assistance to individuals and businesses.

The scale of disruptions in hard-hit economic sectors of the U.S. economy, notably restaurants, retail stores and airlines, suggests that without an available vaccine and effective drugs to combat the virus, many areas of the economy “face a particularly difficult path back to any semblance of normalcy,” the IMF said.

Even as China has rebounded much faster than many expected, India, another populous country in Asia, is enduring difficulties. India’s economy is expected to contract 10.3% this year — 5.8 percentage points deeper than the decline the IMF had forecast in June.

The monetary fund predicted that the euro area, which covers the 19 European nations that use the euro currency, would contract 8.3% this year but rebound 5.2% next year.

The IMF produced the updated outlook for this week’s virtual meetings of the 189-nation lending institution and its sister institution, the World Bank. Those meetings are expected to be dominated by discussions of how to provide more aid to the world’s poorest countries in the form of medical aid and debt relief.

Finance ministers and central bank presidents from the Group of Seven wealthy industrial countries — the United States, Japan, Germany, France, Britain, Italy and Canada — held a videoconference led by U.S. Treasury Secretary Steven Mnuchin to discuss debt relief proposals for poor nations and their efforts to support the global economy, the Treasury said.

One idea being considered is to extend for six months a debt-payment freeze for the poorest nations that took effect May 1 but is due to expire at year’s end. Many aid groups are pressing for rich nations to go further and forgive part of the debt rather than just halt repayments.

Poor countries have been hurt the most by the pandemic. The World Bank has estimated that the pandemic has thrown between 88 million and 114 million people into extreme poverty, which is defined as living on less than $1.90 a day. That would mark the largest increase in extreme poverty on data going back to 1990. And it would end a period of more than two decades in which the rate of extreme poverty had declined.


Source : AP

IMF: A Crisis Like No Other, An Uncertain Recovery

Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.

As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast. The baseline projection rests on key assumptions about the fallout from the pandemic. In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices. For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity. Moreover, the forecast assumes that financial conditions—which have eased following the release of theApril 2020 WEO—will remain broadly at current levels. Alternative outcomes to those in the baseline are clearly possible, and not just because of how the pandemic is evolving. The extent of the recent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects—as the June 2020 Global Financial Stability Report (GFSR) Update discusses—raising the possibility that financial conditions may tighten more than assumed in the baseline.

All countries—including those that have seemingly passed peaks in infections—should ensure that their health care systems are adequately resourced. The international community must vastly step up its support of national initiatives, including through financial assistance to countries with limited health care capacity and channeling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries. Where lockdowns are required, economic policy should continue to cushion household income losses with sizable, well-targeted measures as well as provide support to firms suffering the consequences of mandated restrictions on activity. Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivize the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic.

Strong multilateral cooperation remains essential on multiple fronts. Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net. Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the COVID-19 crisis. Furthermore, building on the record drop in greenhouse gas emissions during the pandemic, policymakers should both implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxation or equivalent schemes. The global community must act now to avoid a repeat of this catastrophe by building global stockpiles of essential supplies and protective equipment, funding research and supporting public health systems, and putting in place effective modalities for delivering relief to the neediest.


Source : International Monetary Fund

COVID-19: IMF is Predicting a 2020 Global GDP Contraction of 3%

Source : Bloomberg